HE European Central Bank (ECB) I couldn’t think of a more toxic gift to celebrate. 25th anniversary of its founding. The monetary and banking supervisory authority of the eurozone celebrates these days. first quarter century life is facing big shock inflation globally in recent years. A battle you’ve already won some warsbut not yet declared winner and you play in reliability As it has only been once in its history. “Inside world of uncertaintyThe ECB has been and will remain an institution. reliable stability anchor“, protecting the president, Christine Lagardein an opinion piece published this Tuesday in the newspapers of Grupo Prensa Ibérica, the publisher of this paper.
Like other major central banks, the ECB changing foot The inflationary spiral first released by reopening of economies Due to rising energy prices post-pandemic and later Russia As part of the invasion strategy for Ukraine. For ten years, the central bank’s primary purpose was to deflation risk (continuous and widespread decline in prices) Great Financial Crisis. He gave the green light to a number of projects to avoid the economic depression. exceptional measureshad to rise to unprecedented levels because of his arrival. covid.
Initially, the ECB Sharp rise in CPI starting in the summer of 2021. “temporary” phenomenon and an assessment shared by his colleagues as he did not take any action Federal Reserve American and bank of england. However, the brutal impact on global prices energy And food Forced to take a war caused by the invasion of Ukraine. copernican twist in your strategy. Already in December 2021, it announced the end of large borrowings and agreed to the first rate hike in 11 years last July. Since then, she has confirmed six more in her cycle. faster and steeper walks his story
End of walks
HE main typetherefore, already positioned at 3.75% (maximum October 2008the dawn of the previous crisis), deposit facility – the rate of interest at which money held by banks is paid, most relevant in the current context – rises at 3.25%. Thanks in large part to this increase in the cost of money, peak inflation left behind (10.6% last October). However, the CPI for the euro area increased by one-tenth with 7% in April. And even more worryingly, underlying – excluding the more volatile energy and food prices – a high 5.6%. As the ECB often points out, the result is inflation. more “sticky” more than expected
In recent weeks, the euro monetary authority, rate increase cycle -in case of realization of forecasts that inflation will continue to be brought under control- to be completed. Every rise like this, up to 24 months to complete all the effects they are still together unleash the effect in financial conditions and with it demand, investment and ultimately economic activity. the market waits two new installs An increase of 0.25 percentage points in June and July will bring the main interest rate to 4.25% and deposit facility to 3.75%, a level consistent with the level set in the USA. euribor Since mid-April, the ECB’s aim is, CPI 2% in the medium termThe rate and main scenario considered to be the most suitable for stimulating economic growth is to keep rates at the same level. restrictive for economic activity “required time”.
However, it looks like there will be only two more climbs in the end. The central bank has refrained from committing nothing to free your hands. The inflationary crisis has revealed it once again. the struggle of two souls coexisting within the institution: that of those who advocate a flexible and broad interpretation of their mandate that takes more account of the economic situation (‘pigeons‘) against those who advocate adhering to the goals of achieving price stability (‘Hawks‘). The first – one of which usually includes: governor Bank of SpainPablo Hernández de Cos- currently seems comfortable with the idea of two 0.25 basis points gains, but the latter is likely to try to go further.
Lagarde’s role
stands in the middle of them lagardewhen he took office, he assured me that he was not.i am hawk or dovebut his “greed be an owloften associated with a certain wisdom.” The senior French official, some harmony in council After the shocking final phase of its predecessor, the central bank government, Mario Draghi. Italian central bank saved the currency union At the most serious moment the institution faced during the sovereign debt crisis of 2012 (already famous: “Within its mandate, the ECB is ready to do whatever it takes to protect the euro, and believe me, it’s enough”). But it also provoked strong disagreements internal.
Lagarde likewise showed it to the public many times. understanding with damage caused by interest rate hikes. population Because of the credit increase. But at the same time, he made an effort to claim it. medicine is less bad than the disease, that is, the effect of an increasing CPI on household disposable income. “Inflation erodes the value of money, lowers its purchasing power and harms citizens and businesses in the eurozone, and particularly the most vulnerable members of our society,” he wrote in his column.
other pending issue The aim of the body is to try to persuade the political authorities of the EU and partner countries. Completing the Banking Union. The latest financial storm caused by the fall Silicon Valley Bank in the United States and Credit Suisse Thus, Switzerland makes the Eurozone itself a Deposit Guarantee Fund common, but also a Capital Markets Association fuller “The euro is more than a currency: The most advanced form of European integration and represents a united Europe that works closely together and protects and benefits all its citizens,” concludes Lagarde.